Flexport, to many the archetype of a technology-based logistics firm, is increasingly coming to resemble its traditional rivals. Earlier this year the company added warehouses to its line-up, and in November it signed up for a weekly Boeing 747F charter from Hong Kong to Los Angeles.
If a company built around technology to spot the best available pricing signs up for a dedicated freighter flight, that says a lot about the market.
Air cargo has been on a roll. The 2017 peak season has been the strongest in a long time, crowning a year of steady growth in demand that has outpaced the rise in capacity. According to the International Air Transport Association (IATA), air freight volume has advanced at twice the pace of the expansion of world trade this past year. By IATA’s estimates, tonnage climbed 9.3% in 2017.
IATA director general and CEO Alexandre de Juniac attributed much of the growth to a frantic restocking effort of depleted inventories, as surging demand caught shippers flat-footed, forcing them to move cargo as fast as possible.
This would make for a short burst of frantic activity, followed by a more pedestrian pace, but IATA expects the rise in demand to continue in 2018, albeit at a slightly reduced clip. To a large extent, this is the result of a second major driver of demand – the seemingly inexorable boom in e-commerce.
“While restocking cycles are usually short-lived, the growth of e-commerce is expected to support continued momentum in the cargo business beyond the rate of expansion of world trade in 2018,” de Juniac said. “Cargo revenues will continue to do well in 2018, reaching US$59.2 billion – up 8.6% from 2017 revenues of US$54.5 billion.”
These predictions are based on projected average global growth in air cargo tonnage of 4.5% in the year ahead to reach 62.5 million tonnes. As this exceeds anticipated growth in capacity, IATA envisages a 5% rise in yield for airlines in 2018, one percentage point lower than their gain in 2017. In other words, air freight rates are set to continue their upward momentum.
The peak frenzy has driven prices to dizzying heights. From late September to mid-November air freight rates from Hong Kong to the US soared from US$3.98 per kilo to US$4.70, while rates from Hong Kong to Europe reached US$3 a kilo in mid-November, climbing 3% in just one week.
Air freight price portal Freightos sent out a sombre message in mid-December, warning that capacity will sell at unaffordable levels for many shippers in the coming year.
“Excepting pharma and tech products, which will have enough margins to absorb high air freight costs, many shippers are no doubt reviewing their mode mix and looking to shipping by ocean next year,” said Manel Galindo, CEO of Freightos WebCargo.
Large forwarders have also sounded the alarm. Senior executives of DHL Global Forwarding and Kuehne + Nagel recently warned their customers that rates on major routes are likely going to be up significantly from a year earlier during the first quarter.
Like Flexport’s charter arrangement, these are ominous signals for shippers. It has to be noted that stratospheric rates have not guaranteed shippers lift on the first flight out on trunk lanes; additional premiums have come into play for boarding priority.
Moreover, the surge in traffic is taking a toll not only on lift capacity but also on infrastructure at airports. Air freight terminals have been overwhelmed, and winter weather has exacerbated the problems in some locations.
“Air freight hit capacity late last month and with bad weather in Northern Europe, the situation is getting worse,” said Galindo.
Frankfurt Airport has also struggled with labour action. Flexport warned its customers to expect “significant delays and trucking wait fees” that would likely continue through the rest of 2017.
On the other side of the Atlantic, Flexport advised its clients that truckers had reported long wait times at New York JFK, Los Angeles, Atlanta and Chicago. As in Europe, it reckoned that severe congestions would continue at these gateways through the holidays.
“Our members see the impact of this growth not only in their increasing freight volumes but the ensuing truck congestion at major airport freight facilities throughout the United States,” remarked Brandon Fried, executive director of the US Airforwarders Association. “Bottlenecks at ground handling terminals create delays resulting in missed flights, potential shipment interruptions and significantly increased cartage costs for forwarders and their surface transportation providers.”
Airside problems have also surfaced with parking spots for freighters and – most dramatically – in a shortage of available landing and take-off slots for freighters. The issue has been most pronounced at Amsterdam Schiphol, but other gateways are also facing slot constraints, including Hong Kong, Shanghai and Beijing.
These issues will force shippers to explore alternative routings and second-tier gateways to move their cargo to destination. In some cases, as Galindo suggested, they may decide to put their freight on the water.
By Ian Putzger
Air Freight Correspondent | Toronto
